AAPL: A 6% Yield, $28B Annually, Is Possible, Says Morgan Stanley

By Tiernan Ray

Morgan Stanley’s Katy Huberty today opines that a higher cash return from Apple (AAPL) could be a “catalyst” for the shares, writing that Apple’s projected return of free cash flow of 36%, between dividends and buybacks, is well below the average of 68% for IT companies in the Standard & Poor’s 500 — a 6% yield, which would be an amazing $28 billion annually.

Huberty, who has an Overweight rating on Apple shares, and a $630 price target, writes that adding that additional $13 billion annually is ” a viable option given our conservative FCF estimates assume Apple generates $21B of US FCF this year and would still end the year with $36B of US cash on hand.”

A stepped-up buyback, for one thing, would boost earnings: “It maintains financial flexibility, and it would improve FY13 EPS outlook as every $5B adds roughly 1% to EPS growth.”

And a higher payout overall could draw in value investors:

Improved cash return could draw value investors who currently own just 2% of Apple shares versus 12% ownership of large-cap IT software and hardware companies. Growth funds lowered ownership from 45% two years ago to 33% today while value investor ownership only increased from 1% to 2%.

Apple shares today are down $1.83, or 0.4%, at $466.07.

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